I was having a read of Martin Hearson’s blog which links to my slightly deranged post about “surviving the witchhunt”… In my defence, I was in the third hour of being stuck on a train at the time of writing that.

I was going to write this as a reply in his blog but it got overly long and ranty. I don’t want Martin to think this is directed at him, because it isn’t. So I cut and paste it here.

I agree that the use of case studies can help people understand the reality of a situation. But I think that the threat of boycott is something that goes further than “studying”.

At that point you are delivering a form of punishment for a transgression of some boundary that the individual didn’t know was there. I think Starbucks may have felt that they were operating comfortably within the spirit of the law and then found that the ultimate perception of their actions is unacceptable to the public.

Also, I don’t think that most campaigners have tried to appreciate the situation Starbucks are in. It’s not as straightforward as the amount of UK corporation tax paid.

As I’ve said elsewhere, I think Starbucks’ structure means that they probably were paying too much corporation tax as a group, not too little. The arms-length transactions have increased losses in the UK but also increased profits elsewhere. They only save tax by reducing profits in the UK, and they’ve overshot that by some way. The existence of losses is a sign of an inefficient structure, not an efficient one.

An optimal tax structure would eliminate all profits in the UK, but it wouldn’t create losses. You’d be looking around the nil mark every year.

Starbucks will have tried to minimise their tax, but even if they have, they appear to have committed to their methodology despite it causing them to pay more tax than they should. Is it because they thought it would come good? Or perhaps they thought it was fair in the eyes of the law?

I actually think the latter. Bizarrely, if Starbucks had tried to optimise their EU tax liabilities, ie “avoid” more tax, they probably would have been paying low amounts of corporation tax year in, year out. I doubt anybody would have picked it out as avoidance.

It isn’t surprising that Starbucks have been forced to make a very unusual move. They are now effectively trying to contravene the spirit of the law in order to pay more tax. Or at least appear to pay more tax. Depending on how they achieve it, it could possibly reduce their group tax liabilities.

I don’t think it actually will, but it’s hard to deduce what they will actually need to do in order to pay tax without causing a very substantial financial loss to their business.

From their statement, it seems impossible they will avoid double taxation unless they seek some form of compensating adjustment. And I can’t see how they can put through compensating adjustments without reducing their tax liabilities elsewhere.

Either way, their commitment seems bizarre to say the least. I’ve had a few conversations today about how they can not claim losses for two years and retain the benefit. The prevailing opinion is that they can’t.

Anyway, for what it’s worth I feel very bad for Starbucks. They’ve probably paid more tax then they ought to and then been dragged before Parliament for avoiding tax.

But now, by trying to engage with the issue, they may have made things worse for themselves. As Martin says, the campaigners want the law to change. That’s fine, but by picking on one company they have forced that company to change.

Does that help the law change? No. Does it encourage vested interest groups to try to intimidate businesses? Maybe.

I’ve no problem with campaigners who want a change in the law, but I think many have been egged on by the media, members of Parliament and certain tax enthusiasts with books to sell. I think they have started to cross a line into something completely inappropriate.